The disease of the day: Acute treatyitis

Myths and consequences of free trade agreements with the US

GRAIN, May 2004
(translated from Spanish)

Of the many processes employed over recent decades to privatise, globalise and deregulate the economy around the planet, the World Trade Organisation (WTO) has been the most important. But for some countries - notably the US - the WTO hasn’t moved fast enough. Back in 1995, and after signing the North American Free Trade Agreement, the US started to dream up the idea of a whole series of regional free trade areas to accelerate the globalisation agenda. Discussions began to establish the first of these, the Free Trade Area of the Americas (FTAA). Since then, the US has also been trying to develop regional negotiations in Africa and Asia .

The efforts to establish global and regional ‘free trade’ agreements have met with considerable resistance. People around the world suffering the effects of so-called free trade have steadily built a movement to reject the dominant economic model. Disapproval was dramatically expressed at the WTO meeting in Seattle in 1999, where thousands of social activists from all over the world held several days of protest against government ministers from more than eighty countries who were meeting to move forward the globalisation agenda. Since then, discontent has escalated. In 2003, WTO Ministers meeting in Cancún , Mexico faced the largest demonstrations to date, with a strong representation of farmers’ movements from many parts of the globe. These protests forced the negotiations to change course. Many non-industrialised nations realised that to continue to surrender their countries and their economies so openly to the WTO’s ‘free trade’ agenda could have serious political costs. At the sam e time, the US and Europe could not justify maintaining their subsidies at the sam e time as demanding the elimination of protection for small family farms in developing countries. As a result, the meeting ended ahead of schedule without having reached any agreements. A few weeks later, the Ministers who were negotiating the FTAA met in Miami . Demonstrations were held again despite an unusually high level of police presence. Again, the manoeuvering room of the Latin American governments was restricted by the social pressures, and Brazil in particular defended certain minimal conditions for its industrial and agricultural sectors, making agreement impossible. As in Cancún, the FTAA meeting in Miami closed early and inconclusively.

The joy felt among many social movements was notable. These events showed that social pressure - if determined and massive enough - could stop what had been considered to be inevitable. The jubilant cries of the WTO being defeated in Cancún and the FTAA collapsing in Miami echoed around the world. But what many have failed to notice that while the WTO and FTAA have been said to be floundering, another epidemic of “treatyitis” has been spreading across the world. The US has approached more than twenty nations to establish bilateral free trade agreements, and some have already signed them. The European Union, Australia , Canada , the Asia-Pacific economic block have been following suit, and countless other bilateral negotiations have started to emerge among smaller economies. Each proposed agreement has been presented as imperative to overcome barriers to trade that are unacceptable in modern times. If so many unacceptable trade barriers are really still in place, why has so much has been spent on the WTO and other multilateral assemblies over the past 15 years?

What we are witnessing is not a failure of the WTO, but an open attempt to speed through liberalisation measures via bilateral or sub-regional negotiations. The US has been quite explicit in this strategy of “competitive liberalisation”. It involves approaching and pressuring the weaker and more submissive countries to sign agreements, keeping momentum going until the nations more concerned about maintaining some degree of sovereignty give in because they become isolated. That is why agreements have been signed with Chile and with Central America, which have no real economic importance for the US. That is why there is a rush to sign with Morocco, Thailand, Bahrain, Peru and Ecuador.

Given such a high level of negotiating activity, it is difficult today to follow each and every process that is underway, more so when all of them are being realised secretly. Nevertheless, on the basis of the efforts already completed and the texts that have already been signed and published, it is possible to see that pre-established patterns are being imposed. The US has already stated that the pattern it wants to follow is the text signed with Chile. Negotiation is only about formal and very limited modifications, while the public relations campaign tries to make us believe a set of myths about what is at stake.

The following attempts to describe some of the myths about the negotiations and to outline the texts that are being imposed by the US, the nation that is pursuing the most aggressive bilateral strategy.

THE MYTHS

1. Free trade agreements are about economics

The first myth is that we are dealing with agreements that have to do exclusively with economic matters. In practice, the agreements are - explicitly and implicitly - political agreements whereby the developing countries are put in a position of extreme political subordination. Without trying to hide this, the US has stated officially that the agreements with the Andean Community nations are a “natural extension” of Plan Colombia - the initiative of the US to send troops to Colombia and to support military action against the Colombian people with the excuse of controlling drug trafficking. In the case of Morocco , the US presents the agreement as a means of supporting its desire to “promote more tolerant, open and prosperous Islamic societies”, which means imposing the standards of the US government on the Arab world. The political objective is not hidden in the case of Thailand either, where the US presents the agreement as a means for reinforcing military ties and cooperation in the war against terrorism.

Political subordination goes well beyond a general referential framework. The agreements impose countless mandatory conditions, requirements and sanctions that give a hard blow to national sovereignty and the basic guarantees of citizens. Whether they like it or not, governments, parliaments and the judiciary branches of the signatory nations cannot act without prior consultation with US businessmen and the US government, and must adopt and implement certain laws and legislative changes that criminalise many of our daily activities, to such an extent that even the supposed intent to commit certain offences could be penalised.

If a signatory nation or its citizens decide to act differently from what is stipulated, or contrary to what is considered correct by the US , they risk serious penalties like enormous fines, direct or indirect economic blockages or embargoes, or even political sanctions.

2. Free trade agreements are about creating free trade

The second myth about all of these processes - and the one most widely accepted - is that within the economic context we are truly dealing with ‘free trade’ agreements. The ‘free trade’ aspect - meaning the creation of conditions that allow the free international flow of merchandise and goods - is clearly marginal. The WTO already did that job, and did it very well. Less than a third of WTO members keep tariffs for agricultural products above 20%, and a quarter of them charge duties below 10% - for products which a decade ago were affected by tariffs of more than 100%, not taking into account other types of support such as the regulation of prices, support for exports, public funding of R&D, subsidies, etc. But the agricultural sector is still less unprotected than other sectors of the economy.

So what are the agreements looking for? Even lower tariffs, especially for agricultural products. But, despite being the death-knell for small- and medium-sized farming in developing countries, the economic significance of lower tariffs for industrialised nations is secondary. The US is disposed to making certain concessions regarding tariffs for agricultural products in exchange for political subordination together with privileges and guarantees for US investors.

3. Concessions make the agreements bearable to farmers

A third myth, intimately tied to the previous one, is that by obtaining concessions for agriculture, the effects of the agreements will be tolerable for farmers and native peoples. Nothing could be further from the truth. The agreements, with or without concessions for agriculture, will make possible the expropriation of farmers’ and native peoples’ lands, and will make the special recognition of rights or the status of native peoples or other social sectors such as farmers and ethnic minorities impossible. They will also make agrarian reform impossible, and will impose the patenting of plants and animals as well as the privatisation of traditional knowledge, biodiversity, water and national parks. Taken together, the agreements create the conditions for the denial of the rights of native peoples and farmers, favouring the privatisation of vast territories - including native peoples’ territories and their waters - as well as the eviction of the rural population and the absolute control of agriculture by big business.

4. Agreements are reached through negotiation

The fourth myth is the suggestion that these agreements have anything to do with negotiation. The agreements that have already been signed show that this is an exercise in promoting packaged products that are almost identical to the letter, and are merely reorganised to better clarify the protection of major investors’ interests. The texts are simply improved versions of the original documents presented by the US in the deliberations about the WTO, the FTAA and the Multilateral Agreement on Investment (MAI). Everything suggests that the non-industrialised nations - for example, Chile and the Central America Free Trade Agreement negotiators - succeeded only in clarifying the so-called “non-conforming measures”. These are merely partial, transitory and easily evaded exceptions which to date have been shamefully marginal and rare. The US , on the other hand, leaves out important economic activities and parts of its territory.

5. Social protests have stopped the progress of neo-liberalism

While it may be painful for us to admit, the fifth myth is that the social protests held at Cancun and Miami stopped the progress of neo-liberalism. These demonstrations were important and caused an undeniable impact. The governments of the whole world have received the message that political support for their continued support for the neo-liberal agenda is increasingly waning. But that has not stopped them. While the FTAA may become irrelevant, the WTO and other negotiations continue to unfold aggressively, and bilateral agreements are providing the US with precisely what they want. What we see is a shift in the methods of attaining their goal, and the strengthening of secrecy around negotiations in order to impede social pressure. The image taking shape is of a neo-liberal framework with fewer loose ends. Any response to that situation has to be equally well put together.

These bilateral Free Trade Agreements set even more drastic conditions of economic and p

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WHAT IS AT RISK

The Free Trade Agreements with the US are really supra-constitutional statutes that grant privileges and guarantees to big capital from the US and drastically restrict civil liberties, human rights and the sovereignty of peoples and nations. Some of the keys to achieving this are outlined below:

1. Do nothing without asking Uncle Sam

Clauses distributed in each chapter, or organised in a single one, oblige the government and legislature of each country to consult with and take into consideration the observations of the business community and government of the US about any future legal or political initiatives that could affect their interests. No exceptions are specified and the signatories could be obliged to accept US oversight of their national policies regarding education, human rights, civil and labour rights, and even their military and national defence policies. These are the so-called standards of ‘transparency’ to assure that the legal process of the signatory countries remains in accordance with what the US considers appropriate. In this way, the agreements offer a carte blanche to stamp on the sovereignty and rights of countries and peoples.

2. Investment is at the heart of the agreements

A chapter on investment sets many of the basic rules. It starts by offering an extremely broad definition of “investment” that includes speculation, the granting of permits, intellectual property, and terms as vague as “expected earnings”. Its definition of “investor” is equally broad, including those who have simply declared an intent to invest. This implies that it would be enough for a foreign company to state its intent to invest in order to receive the guarantees and privileges described below, including the right to enormous indemnification. While foreign investors are handed out concessions and guarantees left and right, a nation may not impose performance requirements on them. Nation states will be converted to production platforms where the large enterprises may exploit our natural resources, our atmosphere and our workforce without being required to contribute any benefit to the economy or national welfare. Some of these concessions and guarantees are described below:

a. Every sector of the economy is to be opened to foreign investment, including those considered as essential to the welfare of the population (such as health and education), or fundamental to national sovereignty or security (such as communications, electricity, water, minerals, military supplies, ports and prisons).

b. Foreign companies get “national treatment”, which means that no business person, professional, farmer, nor member of an indigenous ethnic group can have an advantage greater than that granted to a US company. Among other things, this will put an end to the rights of native peoples regarding their territories and makes impossible the prohibition of sale or entitlement of native lands to individuals who do not belong to the pertinent native race or ethnic group.

c. Privileges given to businesses from any other country must be extended to US investors.

d. The nation-state no longer controls the concentration of economic power and monopolistic practices. Theoretically, those who unlawfully establish a monopoly or control over a market could be sanctioned, but the regulation of monopolies is not addressed per se ;

e. The expectation of earnings by US businesses must be guaranteed by governmental policies, and governments must actively seek to develop such policies

f. Signatory nations could be obliged to pay elevated sums to compensate US businesses when these do not earn what they expect, or said they expect to earn;

g. US businesses are protected from expropriation. They are further guaranteed that if expropriation does occur, the US investors are indemnified and compensated for unrealised earnings. This makes it impossible - or at least very difficult - to pursue many goals related to agrarian reform processes, environmental restoration, the re-establishment of watersheds, and so on.

h. Signatory countries are obliged to deal with US investors on the basis of “international common law” and “fair and equal treatment”. These are vague terms that leave much open to interpretation by business interests and provide ample room for lawsuits against countries in situations such as those described below.

i. The same clauses include the further obligation to provide police protection for foreign investments. This could imply the use of police protection against strikes or protest demonstrations.

3. The sky’s not even the limit when it comes to ‘services’

A chapter on services assures access by US business investors to resources, to components of our environment and activities that have not yet been considered as merchandise, including the privatisation of the seas, rivers and lakes, education, health, pension funds, national parks, communications, transport, and anything else that corporate lawyers care to dream up to include. This broad definition of ‘services’ makes the privatisation of the following possible:

a. Diverse governmental functions such as establishing and enforcing environmental regualtions, the administration of jails, and at least some functions of the armed forces (as the US has done in Iraq and Afghanistan).

b. The press, television and radio and its takeover by US enterprises

c. Anything else that could be called a “service”, because that general term is not defined or is referred to in an extremely broad way. Reference is made in some agreements to privatising “environmental services”, implying that is possible to privatise the atmosphere, weather, ecological functions and the whole of biodiversity.

4. Intellectual property knows no bounds

A chapter on intellectual property authorises legal guarantees that make possible

a. the appropriation and monopolisation of living beings and their parts, without exceptions (thereby including plants, animals, human genes and tissues). This will make it a crime to freely reproduce plants and animals, or freely exchange seeds.

b. The appropriation and control of the circulation and use of information, including traditional and scientific information.

c. Monopolising the manufacturing and sale of medicines, including the power to block others from producing inexpensive medicines, - even those used to prevent or cure illnesses of great social importance such as malaria, tuberculosis or AIDS.

d. Appropriating artistic and cultural creations, including all kinds of music, literature, dance and design, and granting permissions for their use only in exchange for payment.

e. Restricting creative activity in information management and technology when that endangers certain monopolies.

f. Appropriating and restricting the freedom to use prayers, icons, symbols and rituals.

g. Restrictions on photocopying texts, including their use for study.

h. Punishing with fines and imprisonment those who do not respect (or are accused of not respecting) the previously described regulations.

i. Applying such controls and punishments without the need for proof of guilt; the accused must demonstrate their innocence.

j. Persecuting those that might intend not to respect some of these regulations

k. There are no exceptions for professors, students, researchers, schools, universities, public libraries or national archives.

5. A unilateral approach to conflict resolution

Clauses regarding the resolution of controversy:

a. Permit US business interests to initiate lawsuits that demand payment of elevated damages by the countries that have opened their doors to them if they feel that they have not enjoyed all of the privileges that they hoped to obtain.

b. Leave the signatory countries subject to economic sanctions if the US government considers that the terms of the agreement have not been respected.

c. Oblige countries to accept that such lawsuits be considered outside of their laws and national courts, and are decided by supranational, private and secret tribunals.

d. Allow US business interests and government to question and impede the application of any national legislation, including laws dealing with native peoples’ rights, and environmental and labour legislation.

e. Permit the indemnification of enterprises that, in the case national laws be applied to their operations, may see their earnings affected by the pertinent legislation.

6. More ways of turning the screws

A group of other clauses offer further provisions to enable the US to increase its power and influence in a country. These:

a. Oblige the signatory countries to subscribe to a long list of international agreements, leaving no room for discussion by the legislative bodies or citizens, thereby pre-empting criticism or opposition to such commitments;

b. Oblige countries to make important procedural and substantive legal changes: what is now legal becomes illegal and what may now be considered as a violation of a regulation becomes criminal activity;

c. Severely restrict the capacity for each country to define policy and legal frameworks;

d. Limit the degree to which a country can control the entry or exit of products across its frontiers even for reasons of social welfare or national security. This includes the freedom of a country to control the flow the food in the case of hunger, or water in the case of extreme drought.

e. Limit the ability of the signatory nations to control the import of transgenic products and to sustain follow-up activity with regard to their distribution or circulation.

f. Require international bids for the supply of goods, services, and public works to be assessed only on the basis of economics. This means that a national or local government cannot choose a local supplier for social reasons or economic policy justifications. The way the clauses are written mean that it is possible to interpret them as restricting the freedom of a country to define its own policy for buying military equipment.

g. Finally, the terms of the agreement are permanent. According to the concept of “legal stability”, signatory nations can not change the terms in order to protect their own citizens, resources or the environment, if doing so reduces or endangers the earnings of the US business interests.

IS THERE ANY DEGREE OF PROTECTION?

In the face of the overwhelming terms being imposed, signatory countries say that they are defending their national interests through exceptions, or “non-conforming measures”. They also argue that the chapters on Environment and Employment assure significant protection in those areas. In theory, these exceptions could be important, but three factors work against them. First, the general framework is so sturdy that the exceptions are at best damage mitigators rather than real solutions. Second, the US will only consider exceptions that do not get in the way of its own interests. Third, signatory governments have not shown any great interest in negotiating significant and coherent exceptions. A review of what has been achieved by the exceptions shows that these have been much more marginal, partial and easy-to-sidestep than the governments have stated. Specifically:

a. All exceptions must be compatible with the agreement. They can all be called into question and submitted to arbitration.

b. Most of the more damaging clauses do not allow exceptions. The US has been adamant about not accepting exceptions to intellectual property rights and guarantees for its investors.

c. The exceptions regarding tariff reduction are not really exceptions: they merely buy time for gradual tariff elimination. Almost without exception, the agreements demand that within a period of no more than fifteen years, all merchandise - including agricultural products - be tariff free.

d. Theoretically, it is possible to set exceptions that allow the State to maintain control over certain economic activities and natural resources. But the chapter on services includes a provision allowing governments to delegate power to private parties that can be interpreted as a provision to require them to do so.

e. Many of the exceptions allowed to the developing countries have been written as “ Such and such a country reserves the right to ...” , which makes the exception optional. Therefore, its implementation could be called into question and become cause for a lawsuit by the US interests that consider themselves to be affected.

f. The chapters on Environment and Employment are scattered with phrases like “to the degree possible”, “attempt to”, “in accordance with national standards”, and “right to exercise discretion”, in marked contrast to other chapters where phrases like “obligation”, “duty”, and “without exception” abound. In other words, labour rights and the environment are only protected if governments wish to do so and the business interests agree.

The exceptions set the dangerous precedent that anything not mentioned as an exception is accepted as part of the agreement. From this point of view, most of the exceptions cause more harm than good. For example, in the Central America Free Trade Agreement, CAFTA, Costa Rica affirms its right to limit exports of lumber from native tree species, but this sam e exception could be interpreted as implying that it does not have the right to limit exports of any other component of biodiversity. Costa Rica will not be allowed to enforce its own biodiversity legislation , and if it does, it will be open to litigation

The exceptions that countries have negotiated or might negotiate are insignificant next to the powerful and indelible demands filling the body of these bilateral agreements. As they stand, they put an end to any possibility for governments or citizens of a country to define the type of country and relationships that they want. The only possible defence against the implications of FTAs is not to sign them.